Money talks: China’s purse strings direct Pakistan’s war on terror

China is being lauded as Pakistan’s new partner, in the fight against regional terrorism, by offering soft loans in the interests of securing the China-Pakistan corridor, with some 71,000 Chinese nationals reportedly visiting the country in 2016.

Following this week’s BRICS summit, hosted by China, it is clear the region is looking for more than sheer military might, as offered by the US, in order to shore up future security. When President Trump accused Pakistan of continuing to provide a “safe haven to agents of chaos, violence and terror”, he failed to recognise that the South Asian nation has, in fact, made great strides in improving the security situation following a costly four-year crackdown on domestic insurgent groups.

These improvements are reflected in Pakistan’s macroeconomic performances since 2012, not least due to the relative confidence of investors in the $55 billion China-Pakistan Economic Corridor (CPEC), as part of China’s ambitious Belt and Road Initiative. As the Trump administration battles to define its foreign policy in Afghanistan and beyond, China’s intentions are easier to read: investors, rather than soldiers, are the key to peace in Pakistan.

Pakistan’s own war on terror has carried a substantial price tag, in both human and economic costs. The armed forces, which already siphon one-quarter of Pakistan’s $36 billion annual budget, saw a 9 percent rise in defence spending this fiscal year in addition to a 10 percent pay increase.

At the same time, the country’s current budget deficit more than doubled to $12 billion in 2016. With overt and covert anti-terror funds from the US reducing to a trickle, Pakistan is being forced to look further afield for allies who are willing to defend its position in the region, as well as inject the economy with much needed funding. Enter China.

In late August, Islamabad postponed a scheduled meeting with the Acting US Special Representative for Pakistan and Afghanistan, Alice Wells. Instead, the Chinese Special Envoy on Afghan Affairs Ambassador, Deng Xijun, arrived in the capital for crucial discussions with Pakistani authorities on the implications of Trump’s Afghan strategy. The move signalled the solidification of Pakistan-China relations, at the expense of the long standing, though often uneasy, US-Pakistan partnership.

Since the beginning of 2016, China has lent Pakistan more than $1 billion to help stave off a looming foreign exchange crisis. Further, Pakistan has become increasingly reliant on Chinese CPEC investment, creating a special 15,000-strong force to protect the project, a pertinent move following Islamic State’s killing of two Chinese nationals in June this year.

The 43 projects that currently form CPEC’s vision have led to triple the number of Chinese nationals that call Pakistan home, reaching 30,000 this year. A further 71,000 Chinese nationals visited on short-term visas in 2016. Both China and Pakistan, then, have a vested interest in rooting out domestic insurgent groups, a position miles away from Trump’s recent threats.

Nonetheless, China’s expanding reach in South Asia has exacerbated tensions with Pakistan’s neighbours. India, especially, has been a vocal critic of the CPEC project, given it is planned to pass through Pakistan-occupied Kashmir.

After boycotting the Belt and Road Forum hosted by Beijing in May, New Delhi is determined to resist the spread of Chinese soft power in the region. At the same time, Islamabad has shown concern over Trump’s emerging friendship with Indian Prime Minister Narendra Modi, labelling a joint statement by the two leaders as “singularly unhelpful” in achieving stability in South Asia. With Sino-Indian relations continuing to sour, India and Pakistan appear to be pitching their flags with the US and China respectively.

The US undoubtedly needs Pakistan as an ally in fighting regional crime and terrorism, especially as its efforts spill over into the neighbouring nations of Afghanistan and India. If the US won’t play ball, China, and its seemingly bottomless pockets, will. While Pakistan is unlikely to cut off ties with the US entirely, Trump’s tough talk risks destabilising the balance of power in the region in China’s favour.

About Author

Joanna Eva is a London-based analyst and contributor with a range of clients in the risk consulting industry. She specializes in Asian political and economic analysis, having lived and travelled extensively in the region for close to a decade. She holds a Master of Law from the University of New South Wales and received her Bachelor of International Studies from the University of Sydney. She is proficient in English and Mandarin Chinese.